A Tale of Two Stocks: Apple and Coke in China

When trading closed on Wall Street last week, one Apple share cost just under a hundred and six dollars. When the market opened again, at nine thirty on Monday morning, the price had fallen to less than ninety-five dollars. Apple’s shares weren’t the only ones to be battered; within minutes of the opening bell, the Dow Jones Industrial Average had lost more than a thousand points—nearly a seven-per-cent drop—largely in response to fears about a Chinese economic slowdown, which had an impact on trading in other countries as well.

But investors had good reason to be concerned about Apple, in particular. Some years ago, _The Economist _developed a “Sinodependency Index,” designed to measure, roughly, the level of revenue derived from China by companies that provide usable geographic breakdowns of their data. In the most recently published version of the index, from 2013, Apple was more exposed to China than the other hundred and thirty-two members of the S. & P. 500 that published the necessary information.

Apple, too, was apparently concerned about Apple—or, in any case, about investors’ perceptions of Apple. Before the markets opened on Monday, Tim Cook, the C.E.O. of Apple, e-mailed Jim Cramer, the voluble, volatile host of CNBC’s “Mad Money,” to tell him that Apple’s Chinese business was doing just fine. “I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August,” he wrote. He went on, “Obviously I can’t predict the future, but our performance so far this quarter is reassuring.”

It was an unorthodox method of getting the message out; normally, C.E.O.s offer these kinds of statements—that is, ones containing information that can move a stock price—only at scheduled intervals, when their companies report quarterly earnings or hold public meetings with investors. (The move was so unorthodox, in fact, that some wondered if it constituted a violation of Securities and Exchange Commission regulations; the S.E.C. allows disclosures to journalists, but not to individual investors, and Cramer co-manages a portfolio that invests in Apple.) The e-mail was also unusual in its precision. Cook specified that growth in Chinese iPhone activations has accelerated “over the past few weeks” and that the App Store has performed better there in the past two weeks than at any other time this year. He suggested, too, that the growth of the middle class in China, along with the fact that a small portion of the population have cell phones that use the L.T.E. communication standard, which the iPhone offers, will be good for Apple product sales in the long run, despite the short-term troubles in China’s economy.

By the end of trading on Monday, Apple’s share price had risen to more than a hundred and three dollars—less than two dollars below where it had closed on Friday afternoon. The broader market had also recovered somewhat; the Dow ended down five hundred and eighty-eight points, or 3.6 per cent. Still, Apple’s performance was much stronger than that of nearly every other company on the Dow. Cook’s e-mail appears to have helped Apple’s cause, but, as James Surowiecki wrote last week in the magazine, and noted again in a weekend post on the market’s dive, stock exchanges often reflect a longer-term view than people assume. There were previous indications that Apple’s sinodependency wasn’t causing the company as much harm as had been feared, despite China’s economic issues. One prominent research firm, Canalys, estimated in February that Apple had, remarkably, become the top smartphone maker in China; not long before, it hadn’t even been in the top five. (Its position recently fell to number three—still not bad, in a country that represents thirty per cent of global smartphone sales.)

This might partly have to do with one big difference between people in China and those in the United States. China had, until recently, been experiencing a stock-market bubble. But while a large proportion of people in the U.S. invest in the stock market—whether directly or indirectly, through pensions or other means—the vast majority of Chinese people still don’t invest. This means that, by and large, Chinese consumers don’t have their money tied up in stocks; they are therefore more protected than U.S. consumers are when stocks slide. Plus, the Chinese middle class (translation: consumer class) is growing, a trend that, despite short-term economic troubles, is expected to continue in the long run. “Basically, we don’t think that the Chinese consumer—which is a very important consumer—is going to be overly impacted by this, as long as things stabilize,” Chris Christopher, the director of U.S. and global consumer economics at I.H.S. Economics, told me.

And yet, other companies that do significant business in China have seen their share price fall farther. Shares of Coca-Cola, for example, fell almost three per cent on Monday, and have fallen more than eight per cent this year. There are many reasons for Coke’s troubles, of course, including that people are gravitating toward healthier food and drinks, but the company has been looking outside the U.S. and Europe for growth for a while now—longer than Apple has. In fact, in November, 2013, a month before Apple’s deal with China Mobile, Coke announced it would spend four billion dollars in China from 2015 to 2017, on top of four billion it had earmarked for the previous three years. But Coke has struggled in China. A growing middle class should be good for Coca-Cola, just as it is for Apple. But people in China had well-established beverage preferences long before Coca-Cola showed up, and its market for drinks was quite saturated. In contrast, as Cook pointed out in his e-mail, there is a huge population of Chinese people who don’t yet have smartphones but would be glad to buy them. Also, Coke has sometimes run up against government restrictions on its business there, like in 2009, when Beijing blocked its proposed acquisition of a Chinese juice company. Apple, meanwhile, has benefited hugely from a 2013 deal with the state-owned China Mobile to sell iPhones.

China’s economic troubles will, of course, have some impact on the American companies that operate there, but, as Apple and Coca-Cola show, those companies’ situations won’t be uniform. Despite a tumultuous couple of days on the market, U.S. companies’ long-term experiences in China will have as much to do with the particulars of their strategies as with the state of China’s broader economy.

Vauhini Vara, the former business editor of newyorker.com, is a contributing writer for the site. She is also an O. Henry Prize-winning fiction writer, with stories published in Tin House, ZYZZYVA, and elsewhere.